SEC Brings First-Ever Enforcement Action Regarding Employee Confidentiality Agreements

In April, the Securities and Exchange Commission (SEC) initiated the very first enforcement action regarding employee confidentiality agreements against KBR, Inc., a technology and engineering company based in Houston, Texas. Certain pieces of language in KBR’s agreement signed by its employees caused the SEC to take an interest in the case.

According to the SEC, KBR required all employees interviewed in internal investigations to sign confidentiality forms prohibiting them from discussing their interviews in any way — including the subject matter of the conversations — without receiving proper authorization from the company’s legal department. Employees who violated this rule were to be subject to disciplinary action, including possible termination.

However, SEC Rule 21F-17 states that no individual is allowed to take any action preventing another person from communicating with the SEC about potential violations of securities laws, including enforcing (or threats to enforce) a confidentiality agreement. KBR’s confidentiality agreements for internal investigations clearly violated this law because of the inclusion of threats of disciplinary action.

An unusual ruling considering the evidence

What’s particularly noteworthy is that the SEC found KBR to be in violation of the law even though the agency had not been aware of any specific cases in which employees of the company were prevented from reporting potential securities violations. Additionally, there was no evidence that KBR had actually enforced the confidentiality statement in question. Regardless, the company settled with the SEC and paid a penalty of $130,000, while agreeing to alter its confidentiality agreements to follow all SEC guidelines.

If there’s a dispute regarding the efficacy of any confidentiality agreements within your organization, contact the respected Dallas attorneys with Whistleblower Law for Managers for the guidance you need moving forward.